Fair Competition in a World of Competing Capitalisms

Posted by Robert D. Hormats / January 22, 2011

About the Author: Robert D. Hormats serves as Under Secretary of State for Economic, Energy, and Agricultural Affairs.

Next week I will be attending the Davos World Economic Forum, where I expect -- based on recent conversations I have had with business leaders and government officials in the United States and abroad -- that the role of State Owned Enterprises (SOE's) in the global economy will be an important focus of conversation.

During the decade and a half that followed the fall of the Berlin Wall and the creation of the World Trade Organization, the world economy experienced one of its fastest periods of growth. Access to new markets, innovation, and entrepreneurship characterized the strengthening of a "global" economy. During this period, multinational companies prospered, and their success inspired emulation across the globe. A near universal acceptance emerged that free markets and private capital were the key to economic growth and development. Developing and emerging economies alike undertook privatization programs as the state's role in the economy diminished.

We are now seeing a new challenge to this consensus. A new form of "State Capitalism" is emerging where the government's role in the economy is increasing and SOE's, with substantial state support, are beginning to dominate domestic markets and become serious global competitors. Government support through regulatory policies, such as procurement rules, tax policy, and concessionary financing give SOE's or national champions with these benefits an advantage over other international competitors. This trend has accelerated as we have emerged from the global financial crisis and poses challenges not only for the U.S. but more broadly for the international system.

In this changing landscape, we must ensure a level playing field for global competition. We in the State Department are contributing to this effort. At the Organization of Economic Cooperation and Development, we are working with member governments on a concept called "Competitive Neutrality." The goal of this project is to identify policy measures that would put enterprises with extensive state support and other private companies without support on an equal footing. We are hopeful that the OECD will soon adopt best practices in this area.

Access to international markets -- including to those that follow the "State Capitalist" model -- is essential to the competitiveness of American companies and those of our allies, just as access to our markets is essential to the success of foreign companies of all types. This presents an opportunity for U.S. engagement both at the bilateral and multilateral levels with key emerging and developed economies to establish a consensus on norms of behavior that are consistent with our mutual interests, and the global interest, in ensuring robust development, fair competition, a level playing field, job creation and economic growth.

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